Markets

Market outlook: Breach of 50-DMA to take Nifty lower; keep overall exposure light

After three days of pullback, the equity market snapped its rally and saw some corrective pressure coming in. The benchmark index Nifty50 ended the day losing 82.10 points or 0.80 per cent.

The market saw a technical pullback of 300-odd points from the recent lows, but on Tuesday, it gave up a quarter of its recovery.

Going into trade on Wednesday, we expect a quiet start to the session. The index has taken support at its 50-DMA, and this level would be important to watch for at closing level. However, some corrective pressure may remain on the market, but any breach below 50-DMA will take the markets lower.

Wednesday’s session will see 10,265 and 10,300 playing out as immediate resistance levels. Supports come in at 10,180 and 10,135 levels.

The Relative Strength Index (RSI) on the daily chart is 49.9515 and it stays neutral showing no divergence against the price. The daily MACD is currently bearish trading below its signal line, but it is sharply moving towards positive crossover in coming days. An Engulfing Bearish Candle has emerged. However, this formation cannot be read in an isolated manner. It should be read in context of the overall structure of the charts and its place of occurrence. In the current scenario, its formation remains insignificant.

The pattern analysis shows the market remaining in the falling intermediate channel on the daily charts. It continues to face resistance in the 10,360-10,380 levels.

Overall, the weakness that we saw in the Tuesday’s session came in little early. Resistance was expected, but it was expected in the 10,360-10,380 zones. These levels will still continue to pose resistance to any pullback that the market may see.

The market is in very close vicinity of the 50-DMA, and this would be an important support to watch at the closing levels. Any meaningful breach below 50-DMA might induce some more weakness in the markets. We advice a cautious view on the market, we also recommend keeping overall exposures modest while avoiding shorts.

STOCKS TO WATCH: In the event of any corrective pressure persisting, we may see stocks like Godrej Consumer, Gruh Finance, Tata Motors, Eicher Motors, HDFC, Dabur and Tata Power showing some resilience in the trading session.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

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